IMF Occasional Paper No. 199

Ghana: Economic Development in a Democratic Environment

Sergio Pereira Leite, Anthony Pellechio, Luisa Zanforlin, Girma Begashaw, Stefania Fabrizio, and Joachim Harnack

This study reviews main economic developments and policies in Ghana during the 199299 period and highlights the challenges and trade-offs that a small open economy faces when developing in a democratic environment. The paper underscores how a democratic and participatory approach to policymaking can contribute to better decision making, broader popular support for economic programs, and prevention of backtracking. But it also makes clear that consensus building takes time and effort, and that, by itself, a participatory approach does not ensure success. Ghana’s Vision 2020 program was a good start, but it still falls short of what is needed to achieve middle- income status within one generation. The next phase of economic reforms should focus on the areas most likely to make a large contribution to reducing poverty and raising sustainable growth, that is, agricultural development, trade, public sector reforms, privatization, and governance.

Detailed contents of IMF Occasional Papers are available at http://www.imf.org/external/pubind.htm.

IMF Occasional Paper No. 200

Pension Reform in the Baltics: Issues and Prospects

Jerald Schiff, Niko Hobdari, Axel Schimmelpfennig, and Roman Zytek

This paper summarizes efforts by the Baltic countries to reform their pension systems, and examines the choices these countries face in their continued reform efforts. Early in their transition, these countries enacted measures that were aimed at correcting the flaws of the inherited Soviet system, in particular, by shoring up the finances of the pension systems and reducing their distortionary impacts. While these efforts were largely successful, they have been partially undone in subsequent years.

Estonia, Latvia, and Lithuania have recently turned their attention to addressing adverse demographic trends, moving toward a three-pillar pension system incorporating a fully-funded scheme. The paper emphasizes that, while such pension reforms can have significant benefits, they do not allow countries to “escape” problems associated with changing demographics. Rather, reforms can help to address demographic concerns only to the extent that they contribute to higher national savings and growth. In this context, the details of the operations and financing of the fully funded scheme are crucial.

Detailed contents of IMF Occasional Papers are available at http://www.imf.org/external/pubind.htm.

IMF Occasional Paper No. 201

Developments and Challenges in the Caribbean Region

Samuel Itam, Simon Cueva, Erik Lundback, Janet Stotsky, and Stephen Tokarick

This study concludes that economic growth in the Caribbean region is expected to increase over the medium term, averaging about 3.5 percent a year during 200005, compared with 2.6 percent during 199099. The inflation differential with the United States is also expected to narrow, resulting in some gains in competitiveness for the region. However, Caribbean countries face several tough challenges, as their preferential trade arrangements with industrial countries are likely to be progressively eroded and concessional assistance will become more difficult to attract. A slowing U.S. economy could also adversely affect the region’s foreign currency earnings.

The members of the Caribbean Community (CARICOM) will therefore need to take a number of measures to preserve economic gains made over the past two decades. These include accelerating privatization of state-owned financial institutions, expanding trade liberalization, holding down local production costs and diversifying exports. Reducing public sector deficits will require a balanced combination of tax reform and spending restraint. Progress toward achieving the goal of a single market economy in the Caribbean region has been slow, but some success has been achieved in harmonizing domestic tax regimes.

Detailed contents of IMF Occasional Papers are available at http://www.imf.org/external/pubind.htm.

IMF Occasional Paper No. 202

Adopting Inflation Targeting: Practical Issues for Emerging Market Countries

Andrea Schaechter, Mark R. Stone, and Mark Zelmer

This paper assesses the institutional and operational practicalities of inflation targeting for the increasing number of emerging market countries that are adopting this type of regime. The motivation for the paper is the increasing number of emerging market countries that are asking the IMF for technical assistance in this area. The assessment draws largely on the relatively long inflation-targeting experiences of certain industrial countries, as well as the more recent experiences of some emerging market countries. A comparison between the practices of emerging and industrial countries suggests that the former tend to prefer more formal institutional frameworks, shorter target horizons, target bands rather than points, and more frequent foreign exchange market intervention. These distinctions are largely attributable to differing economic structures and history—for example, emerging market economies tend to be more prone to volatile capital flows and other shocks, have less developed financial systems, and have higher and more variable rates of inflation.

Detailed contents of IMF Occasional Papers are available at http://www.imf.org/external/pubind.htm.

IMF Occasional Paper No. 203

Modern Banking and OTC Derivatives Markets: The Transformation of Global Finance and Its Implications for Systemic Risk

Garry Schinasi, R. Sean Craig, Burkhard Drees, and Charles Kramer

This paper notes that the rapid growth, development, and widespread use of over-the-counter (OTC) derivatives have accompanied, and in many ways made possible, the modernization of banking and the globalization of finance. While acknowledging the considerable benefits that derivatives have provided, the paper identifies and examines sources of risk to market stability and imperfections in the underlying institutional and market infrastructures.

The authors propose a rebalancing of public and private roles in ensuring stability in OTC derivatives markets. They argue that the potential for instability can be reduced through more effective market discipline, improved private risk management, greater public disclosure, and market transparency. The authors also propose that public authorities become more proactive in providing incentives for effective market discipline, and also consider changes in prudential regulations—in particular, raising capital adequacy requirements—if market discipline does not improve. More effective monitoring of OTC derivatives markets and the removal of legal and regulatory uncertainties are also called for.

Detailed contents of IMF Occasional Papers are available at http://www.imf.org/external/pubind.htm.